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What to Make of This Rally

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What’s in Today’s Report:

  • What To Make Of The Rally.
  • Coronavirus Update – Is Italy Peaking?

Futures are sharply lower (down about 2%) following a generally quiet night as markets digest the big three day rally.

The U.S. passed China in total number of coronavirus cases on Thursday, although there is some hope emerging that the spread of the virus is peaking in Italy.

Politically, there was no notable news overnight and passage of the stimulus bill will happen later today.

Today the key event is the passage of the stimulus bill in the House, but that is universally expected.  Outside of that, the key economic report will be Consumer Sentiment (E: 92.0), because that will give us some preliminary insight into how bad consumer spending might be in the coming months.  We also get the Fed’s preferred measure of inflation,  Core PCE Price Index (E: 1.8%), but at this point that number will be ignored as no one is worried about high inflation right now.

How Much Will The Stimulus Help?

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What’s in Today’s Report:

  • How Much Will the Stimulus Help?
  • Cash is King

Futures are down around 1% despite the Senate passing the stimulus bill, as markets digest the past two day’s rally.

The Senate passed the stimulus bill last night and the House has indicated it will pass the bill tomorrow, removing any lingering uncertainty.

Economic data was disappointing as German GfK Consumer Climate missed estimates (2.7 vs. (E) 7.7), as did British Retail Sales (-0.3% vs. (E) 0.2%).

Today there are two important events, both of which come early in the day.

First, Fed Chair Powell will appear on the Today Show at 7:05 a.m. ET, and while he won’t reveal any new policies, markets will be watching for a generally positive tone.

Second, the most important economic number of the week comes this morning via weekly jobless claims, which are estimated to be 1 million.  That is a figure I never thought I would see, considering claims peaked below 700k at the depths of the financial crisis.  If claims blast through that 1 MM estimate and move towards 2 MM that could be a headwind, while anything below 1MM will be a mild positive.

Additional Fed QE Takeaways

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What’s in Today’s Report:

  • Additional Fed QE Takeaways

Futures are limit up this morning and money flows were decidedly risk-on overnight as several sources, including individual Senators, suggested that the near $2T stimulus package will be passed today.

Additionally, the spread of the coronavirus showed signs of slowing in the last 24 hours while economically, global Flash PMI data was not as bad as feared overnight with manufacturing components universally topping estimates.

Today, there are two economic reports due to be released: PMI Composite Flash (E: 44.2) and New Home Sales (E: 743K), and one Fed official scheduled to speak: Bullard (9:45 a.m. ET). There is also a 2-Yr Treasury Note Auction at 1:00 p.m. ET.

With two of the three “keys to market stabilization” either accomplished (Fed stimulus) or in progress (slowing spread of the virus), all eyes will remain on Capitol Hill today. And if the massive economic stimulus package passes a vote in the Senate, expect a relief rally to follow as investor sentiment should become decidedly less gloomy.

Corporate Bond Market Update

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What’s in Today’s Report:

  • Corporate Bond Market Update

Futures are sharply higher this morning as global governments move forward with more economic stimulus.

The Senate formally released the third economic stimulus bill, valued over 1 trillion (and likely rising).  While not a done deal yet, the speed at which Washington is operating has quickened this week and markets are reacting positively to that change.

On the coronavirus front, all of California is now under a “stay at home” order as cases continue to rise.

Today all eyes will remain on Washington and any positive commentary on the stimulus bill will further help stocks, while signs of a political battle will likely reverse these early gains.  Economically, there’s one report,  Existing Home Sales (E: 5.50M) and today is a “Quad Witch” quarterly options expiration so watch for big volumes on the close.

Why The Fed Needs To Do More

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What’s in Today’s Report:

  • Why The Fed Needs to Do More
  • Is It Time to Go To Cash?

Futures are down just under 2% which is an improvement as they were nearly down limit at the lows overnight, so there’s been a good rebound.

On the stimulus front, governments continue to act.  Stimulus bill 2 was passed last night and the ECB dramatically increased its QE program by 750 bln euros. and will buy government bonds, corporates and commercial paper. Australia also launched its first ever QE program.  All these measures are helping markets and sentiment.

All eyes today will be on Washington for signs of progress on stimulus bill three, and the sooner it passes, the better.  From an economic standpoint, Jobless Claims (E: 220K) are the key report and we’re expecting a big increase, while Philadelphia Fed (E: 14.0) will also be important as we want to see more March data.

Reasonable Valuation Targets

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What’s in Today’s Report:

  • Where Is a Reasonable Valuation for this Market?
  • Two Reasons Gold Is Losing Its Luster

Futures were “limit up” for much of the night following Monday’s rout but have since pulled back to flat as fears of a coronavirus induced recession to continue to grip markets.

Overnight, the German ZEW Survey was dismal with the Current Conditions Index crashing to -43.1 vs. (E) -25.0 underscoring the rapid deterioration in investor sentiment due to the COVID-19 outbreak.

The Fed Meeting has been canceled following Sunday’s intermeeting actions and there are no Fed speakers today.

There are a few notable economic releases to watch this morning, however. In order of importance they are: Retail Sales (E: 0.1%), Industrial Production (E: 0.4%), Business Inventories (E: -0.1%), Housing Market Index (E: 74), and January JOLTS (E: 6.500M).

The first two are especially important as if the data points confirm that economic growth materially slowed in February as a result of the coronavirus outbreak, it could cause more fear-induced selling today as hopes for a swift rebound in growth will continue to fade.

 

Of course, any noteworthy updates on the COVID-19 pandemic, positive or negative, will continue to have a significant influence on the market and volatility is likely to remain elevated.

Sevens Report co-editor Tyler Richey Quoted in MarketWatch on March 10, 2020

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Tuesday’s rebound for oil is “relatively modest” compared to Monday’s plunge, said Tyler Richey, co-editor at Sevens Report Research. “We could easily see a retracement higher in prices in the days and weeks ahead…” Click here to read the full article.

Oil Rig

What to Make of Yesterday’s Rally

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What’s in Today’s Report:

  • What to Make of Yesterday’s Rally
  • Jobs Report Preview
  • EIA/Oil Update (Will An OPEC Production Cut Help?)

Futures are sharply lower and they are giving back more than half of yesterday’s rally as coronavirus continues to spread throughout the U.S.  Clearly some of this morning’s decline is just normal give back from yesterday’s explosive rally, although economic fears are continuing to mount as the number of cancelled events, gatherings and conferences continues to rise.

There are now 160 coronavirus cases in the U.S. as California declared a state of emergency while another cruise ship is being held at sea due to fears of an outbreak.  But, the news wasn’t all bad as there were just 160 new coronavirus cases in China, and evidence continues to mount that Chinese officials are getting the spread of the disease under control.

Economically, there were no notable reports overnight.

Coronavirus headlines will continue to drive trading, and broadly speaking anyreports of U.S. or global economic stimulus will be a tailwind on stocks, while any reports of an acceleration of the spread will obviously be a headwind.

Outside of coronavirus, there is just one economic report, Jobless Claims (E: 215K), but we’ll be watching this closely because it’s the best real time indicator of the labor market we have.  If claims rise (say above 230k) that will fan fears of an economic fallout from coronavirus.  Outside of the jobs report we also get multiple Fed speakers (Kaplan (6:30 p.m. ET), Kashkari (8:00 p.m. ET) and Williams (E: 8:45 p.m. ET)) but none of them should move markets.

Coronavirus and the Bond Market

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What’s in Today’s Report:

  • Bond Market Update: Bull Steepening and New Record Lows in the 10-Year Yield
  • Coronavirus Facts and Fears

U.S. stock futures were volatile overnight, reversing from tentative gains to losses as global shares continued to decline amid the evolving coronavirus outbreak situation.

News regarding COVID-19 remained largely the same overnight; the outbreak in China continues to be contained but is spreading more rapidly in other regions including the EU.

The 10-Yr yield is encouragingly stabilizing this morning while the 2-Yr continues to decline as traders are now pricing in 65% odds of a Fed rate cut by April due to the coronavirus outbreak’s negative effects on the economy.

Today, coronavirus headlines will continue to dominate the news and markets however, there is one economic report to watch: New Home Sales (E: 708K) and two Fed officials are scheduled to speak: Kaplan (9:35 a.m. ET) and Kashkari (1:00 p.m. ET).

Market Multiple Update

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What’s in Today’s Report:

  • Market Multiple Update

U.S. stock futures and global equities are solidly higher this morning thanks to emerging reports of breakthrough treatments for the coronavirus outbreak however details on the potential “cure” are limited at this time.

Economic data was mixed overnight as global Composite PMI data modestly topped expectations but Eurozone Retail Sales disappointed in December (-1.6% vs. E: -0.4%).

Today, there are three economic reports to watch starting with the first release of “jobs week,” the ADP Employment Report (E: 154K) which will be followed by International Trade figures (E: -$48.1B) and the ISM Non-Manufacturing Index (E: 55.2).

There is also one Fed official scheduled to speak after the close: Brainard (4:10 p.m. ET) and a few key earnings releases to watch: MRK ($1.14), GM ($0.01), QCOM ($0.85), and MET ($1.40).

As long as there are no major surprises from those potential catalysts, the market is likely to remain focused on the coronavirus outbreak and any emerging details regarding the potential breakthroughs in treatment that were reported overnight. Given the lack of specifics and the near-term overbought status of stocks here, the risk of a “sell the news” reaction does exist today.